US SUPREME COURT DECISIONS

The Ohio "Blue Sky Law," Supplement to Page & Adams' Ann.Gen.Code of Ohio, 1916, vol. 2, §§ 6373-1 to 6373-24, examined as to its constitutionality and upheld.

In the exercise of the power to prevent fraud and imposition, Hutchinson Ice Cream Co. v. Iowa, ante, 242 U. S. 153, a state may forbid dealing in stocks and other securities within its borders without a license, and subject the business to executive supervision.

The liability of a business to regulation is not necessarily dependent upon its liability to be abolished under the police power.

Under the so-called "Blue Sky Law" of Ohio, dealers within its provisions (including companies floating their own issues) are not licensed to sell stocks and other securities unless an executive officer designated is satisfied of the good business repute of the applicants and their agents, and licenses, when issued, may be revoked by him upon ascertaining that the licensees are of bad business repute, have violated any provision of the act, or have engaged, or are about to engage, under favor of their licenses, in illegitimate business or fraudulent chanrobles.com-red

Page 242 U. S. 540

transactions; his findings, however, are made subject to judicial review. Held that the powers thus conferred are not arbitrary, but consistent with due process under the Fourteenth Amendment. Gundling v. Chicago, 177 U. S. 183.

The fact that the statute designates a particular court to review the executive findings does not affect its validity.

It is to be presumed that the executive officer will act properly in the public interest, and not wantonly or arbitrarily.

Whether there is a constitutional liberty to buy securities on one's own judgment of value without governmental interposition to protect from bad bargains will not be determined at the suit of parties whose rights are involved only from the standpoint of sellers, but

Quaere whether the state power does not extend to such guardianship over buyers.

The equal protection clause of the Fourteenth Amendment leaves the states at liberty to regulate those activities which they deem conspicuous sources of existing evils without embracing others which, but for this distinction, would fall in the same class.

A state law designed to prevent fraud in the selling of securities, which affects securities coming from other states only in requiring that persons dealing in them within the state shall be first licensed, shall file information concerning them and be subject in such dealing to executive supervision, is not invalid as a direct burden on interstate commerce.

Quaere as to when and under what circumstances securities transported into a state may be held to have lost their interstate character?

230 F.2d 3 reversed.

These cases were heard together in the district court and there disposed of in one opinion. They were argued and submitted together here. The bills of complaint attacked from different angles the so-called Blue Sky Law of the State of Ohio, which provides:

"Sec. 6373-1. Except as otherwise provided in this act, no dealer shall, within this state, dispose or offer to dispose of any stock, stock certificates, bonds, debentures, collateral trust certificates, or other similar instruments (all hereinafter termed 'securities') evidencing title to or interest in property, issued or executed by any private or quasi public corporation, copartnership, or association

Page 242 U. S. 541

(except corporations not for profit) or by any taxing subdivision of any other state, territory, province, or foreign government, without first being licensed so to do as hereinafter provided."

"Sec. 6373-2. . . . The term 'dealer,' as used in this act shall be deemed to include any person or company, except national banks, disposing or offering to dispose, of any such security, through agents or otherwise, and any company engaged in the marketing or flotation of its own securities either directly or through agents or underwriters or any stock promotion scheme whatsoever, except:"

"(a) An owner, not the issuer of the security, who disposes of his own property, for his own account; when such disposal is not made in the course of repeated and successive transactions of a similar character by such owner, or a natural person, other than the underwriter of the security, who is a bona fide owner of the security and disposes of his own property for his own account . . ."

"As used in this act, the term 'company' shall include any corporation, copartnership, or association, incorporated or unincorporated, and whenever and wherever organized; . . ."

The Geiger-Jones Company is an Ohio corporation, licensed to do the business of buying and selling investment securities, and of buying and selling the stocks and bonds of industrial corporations. It has a regularly established clientage, it alleges, of about 11,000 persons residing in the State of Ohio and other states, and has sold and there are now outstanding in the hands of persons to whom it has sold, securities of about twenty to twenty-five million dollars par value, and has stockholders in Ohio and other states. That the securities above referred to consist of securities of over twenty corporations of Ohio and other states and foreign countries. That it is still selling such chanrobles.com-red

Page 242 U. S. 542

securities and is and has been engaged in intrastate, interstate, and foreign commerce.

The appellee, Don C. Coultrap, in No. 439, repeats the allegations made by Geiger-Jones Company, with enumeration of some of the companies in whose stocks and securities that corporation is engaged in dealing, and alleges that he is the owner and holder of its stocks and of the stocks of other companies, and is engaged in buying and selling and offering to sell such stocks in the State of Ohio and in the State of Pennsylvania, and in the course of such transactions travels back and forth between those states and conducts a correspondence from Pennsylvania to Ohio, and receives certificates evidencing the ownership of stock from the State of Ohio, and sends them from Pennsylvania to Ohio.

William R. Rose, one of the appellees in No. 440, alleges himself to be a citizen of Ohio and engaged in that state in the business of buying and selling investment securities, and particularly the stocks and bonds of industrial corporations, and that he has built up and maintained a large and profitable business and an enviable reputation.

The RiChard Auto Manufacturing Company, the other appellee, is a corporation of West Virginia, but has its principal place of business in Cleveland, Ohio, and has a contract to manufacture and is ready to manufacture automobiles under certain patents obtained by Francois RiChard as soon as and not until the stock of the company can be put upon the market and a sufficient amount realized therefrom for such purposes.

That on September 25, 1914, and prior thereto, Rose was actively engaged in buying and selling stocks and bonds of industrial corporations and investment securities in general, and particularly the stock of the RiChard Auto Manufacturing Company, of which company he was the secretary, and for which business he had unusual aptitude and was able to prosecute more successfully "than any chanrobles.com-red

Page 242 U. S. 543

other man whose services were available to said corporation."

That, on September 25th, he was arrested upon an affidavit filed by one H.R. Young, a subordinate and deputy of the state Superintendent of Banks and Banking for the State of Ohio, under whose immediate direction and control he was then acting. Rose, upon being taken before a magistrate, waived examination and was "bound over to the grand jury" of Cuyahoga County, which jury subsequently returned an indictment against him for violation of the law.

The grievance alleged in Nos. 438 and 439 is that, under the laws of the state, the Attorney General is threatening to give an opinion to Hall, the superintendent of Banks and Banking, that the law is valid and that it is the duty of Hall to cancel appellees' license, and that this will result in irreparable injury to appellees and to their security holders from the publicity they will obtain. And it is apprehended that Hall will act on such advice, believing that he is bound by the opinion of the Attorney General.

The statute is attached to the bills, and is asserted to be unconstitutional, invalid, and void, and the particulars are enumerated to be that it will deprive appellees of their property without due process of law, deny them the equal protection of the laws, impose burdens on interstate commerce, confer executive powers, delegate such powers and legislative powers, in violation of the Constitution of Ohio. Appellees consider themselves remediless except in equity, and pray injunctions interlocutory and permanent.

The complaint of Rose and the Auto Company is that Hall, Superintendent of Banks and Banking, is actively engaged in the prosecution of the proceedings against Rose, and has, together with the prosecuting attorney, interfered with, interrupted, and completely prevented Rose from carrying on his business in the State of Ohio, and especially in attempting upon his part to dispose of and chanrobles.com-red

Page 242 U. S. 544

sell the stock of the Auto Company, and that the Prosecuting Attorney and the Sheriff of Cuyahoga County, unless restrained, will assist and actively cooperate with Hall, to the great and irreparable injury of both Rose and the Auto Company.

The charge is amplified by details which it is unnecessary to give, and the law is charged to be unconstitutional in the same particulars as those enumerated by the Geiger-Jones Company.

Injunctions temporary and perpetual are prayed.

The district court in the Geiger-Jones case considered that it was without power to enjoin the Attorney General, but decided that it could and should, under the charges of the bill, restrain Hall from further action under the law, the restraint to continue until the hearing and determination of the applications of the respective complainants for interlocutory injunctions.

The applications subsequently came to be heard before three judges, and Hall and all of his employees and subordinates were enjoined from attempting to enforce the provisions of the law. There was an exception in No. 440, as follows:

". . . except such proceedings as may be deemed proper in any criminal action pending against said complainants or either of them when the complaint in this cause was filed."

The injunctions in all the cases were to continue until final decision of further order of the court. The court declared the law to be obnoxious to all of the charges made by the respective complainants against it. 230 F.2d 3. chanrobles.com-red

Page 242 U. S. 548